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US and European central bankers on Monday set out rival arguments on stablecoins as Federal Reserve governor Christopher Waller endorsed the private sector cryptocurrencies while Bundesbank president Joachim Nagel warned against supporting “innovation for innovation’s sake alone”.
In two contrasting speeches at a conference in Frankfurt, Waller and Nagel highlighted a growing transatlantic rift among rate setters about digital tokens that track the value of fiat currencies and are a cornerstone of crypto trading.
The remarks came amid a push by US President Donald Trump’s administration for the widespread adoption of mostly dollar-backed stablecoins from private sector issuers. The drive has spooked officials in Europe, who are doubling down on the creation of a European Central Bank-backed digital euro.
“If stablecoins present a lower cost alternative to consumers and businesses, I am all for it,” said Waller at the Sibos banking and financial conference in Frankfurt. He also took a swipe at the ECB’s plan to launch a digital central bank currency, arguing that the private sector was much better placed to innovate. “You don’t want the government to decide what technologies are in or out,” he said.
Waller also highlighted an international role for stablecoins, saying they were “an attractive option in countries in which access to dollar banking services is expensive or limited”.
Those remarks could play into European policymakers’ fears that dollar-backed stablecoins could diminish the global role of the euro and may even undermine monetary policy in the Euro area.
A few hours earlier, Bundesbank president Nagel — one of the most influential policymakers on the ECB’s governing council — struck a completely different tone. In his introductory remarks to Sibos, Nagel focused on “previously unknown risks” that are stemming from stablecoins. “Many things could go wrong,” he warned. “We cannot support innovation for innovation’s sake alone.”
The ECB has repeatedly warned that it may lose control over monetary policy if dollar-denominated stablecoins should be widely used in the Euro area.
“We, as central banks, will not accept any developments that weaken our ability to implement monetary policy effectively,” said Nagel, adding that the “anchor role of central bank money must not be weakened”.
Waller dismissed such concerns, arguing that stablecoins are just another form of private sector money, which has coexisted with central bank money like cash for a long time.
“Stablecoins are simply a new form of private money and will exist alongside these other payment instruments,” he said, arguing that the growing demand for stablecoins reflected “a need in the market to further improve payments” by consumers and businesses.
The US has pushed for the wider adoption of stablecoins through the so-called Genius Act, which Trump signed into law in July.
The US Treasury is also thought to view international use of dollar-backed coins as a means to raise demand for US government debt. Stablecoins tend to be backed by liquid dollar assets, such as short-term Treasury bills.
The push has raised concerns that stablecoins will require state-backed bailouts. Nagel warned on Monday that “distorted incentives” for stablecoin issuers could result in “potential bank runs or increased market volatility”.
Waller, who is seen as a possible Trump pick to replace Jay Powell as Fed chair, sought to assuage such concerns, saying they “will be backed at least 1 to 1 with safe, liquid assets and users will be able to redeem their stablecoins at par”.
“I have long advocated that a right-sized regulatory framework can address concerns related to safety and financial stability, while allowing stablecoins to scale on their own merits,” he said.
In a separate speech on Monday in Tallinn, ECB executive board member Piero Cipollone argued that the ECB, rather than the private sector, needed to act to make sure that cash will be available “not just in physical form, but also digitally” as digital payments in Europe currently were overly dependent on “non-European companies”.
Cipollone warned that such “excessive dependency” threatened Europe’s ability “to act independently in one of the areas most critical for the functioning of our economy: money”.